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EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex31-1.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex32-1.htm
EX-32.3 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex32-3.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex31-2.htm
EX-31.3 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex31-3.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex32-2.htm
 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[x]           Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended
June 30, 2010
 
 
or
[  ]           Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from
 
to
 

Commission_File_Number_
000-53189
 

ICON Leasing Fund Twelve, LLC
(Exact name of registrant as specified in its charter)

Delaware
 20-5651009
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

100 Fifth Avenue, 4th Floor, New York, New York
10011
(Address of principal executive offices)
(Zip code)

(212) 418-4700
(Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes     [ ] No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       
[ ] Yes     [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,’’ “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.   
 
Large accelerated filer [  ]     Accelerated filer [  ]     Non-accelerated filer [X]     Smaller reporting company [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[  ] Yes   [X] No

Number of outstanding shares of limited liability company interests of the registrant on August 6, 2010 is 348,650.

 

 
 
Table of Contents
 
     
     
Page
     
 
     
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36
     
 
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36
     
 
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38
 




 
(A Delaware Limited Liability Company)
 
Consolidated Balance Sheets
 
   
Assets
 
   
   
   
June 30,
       
   
2010
   
December 31,
 
   
(unaudited)
   
2009
 
 Current assets:
           
 Cash and cash equivalents
  $ 39,784,068     $ 27,075,059  
 Current portion of net investment in finance leases
    19,678,658       17,565,862  
 Current portion of notes receivable
    21,787,275       22,786,334  
 Other current assets
    3,115,179       1,740,046  
 Assets held for sale, net
    5,913,189       8,982,354  
   
 Total current assets
    90,278,369       78,149,655  
   
 Non-current assets:
               
 Net investment in finance leases, less current portion
    136,977,937       139,014,358  
 Leased equipment at cost (less accumulated depreciation of
               
     $60,432,515 and $43,506,562, respectively)
    347,325,959       335,480,153  
 Notes receivable, less current portion
    42,976,778       51,122,271  
 Investment in joint venture
    4,237,699       4,609,644  
 Due from Manager and affiliates
    2,234,294       -  
 Other non-current assets, net
    12,730,057       12,602,305  
 
 
 Total non-current assets
    546,482,724       542,828,731  
   
 Total Assets
  $ 636,761,093     $ 620,978,386  
   
Liabilities and Equity
 
   
 Current liabilities:
               
 Current portion of non-recourse long-term debt
  $ 44,539,395     $ 43,305,938  
 Derivative instruments
    8,359,030       4,779,552  
 Deferred revenue
    6,383,408       6,576,971  
 Due to Manager and affiliates
    293,096       482,301  
 Accrued expenses and other current liabilities
    3,229,681       3,154,453  
   
 Total current liabilities
    62,804,610       58,299,215  
   
 Non-current liabilities:
               
 Non-recourse long-term debt, less current portion
    191,666,292       176,961,900  
 Other non-current liabilities
    53,190,101       44,082,046  
   
 Total non-current liabilities
    244,856,393       221,043,946  
   
 Total Liabilities
    307,661,003       279,343,161  
   
Commitments and contingencies (Note 13)
 
   
 Equity:
               
 Members' Equity:
               
Additional Members
    271,127,846       278,405,366  
Manager
    (374,576 )     (301,542 )
Accumulated other comprehensive loss
    (9,397,909 )     (5,024,109 )
   
 Total Members' Equity
    261,355,361       273,079,715  
 
 
 Noncontrolling Interests
    67,744,729       68,555,510  
 
 
 Total Equity
    329,100,090       341,635,225  
   
 Total Liabilities and Equity
  $ 636,761,093     $ 620,978,386  


See accompanying notes to consolidated financial statements.


 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Operations
 
(unaudited)
 
   
   
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
 Revenue:
                       
 Rental income
  $ 15,279,370     $ 13,213,846     $ 30,936,632     $ 26,044,236  
 Finance income
    3,719,557       2,567,011       7,685,324       3,447,921  
 Income from investment in joint venture
    148,245       130,962       297,203       292,866  
 Interest and other income
    3,050,974       2,583,355       6,274,726       4,999,171  
 Gain on guaranty
    2,162,795       -       2,162,795       -  
 Loss on assets held for sale
    (297,864 )     -       (297,864 )     -  
   
 Total revenue
    24,063,077       18,495,174       47,058,816       34,784,194  
   
 Expenses:
                               
 Management fees - Manager
    1,092,234       766,823       2,165,116       1,466,852  
 Administrative expense reimbursements - Manager
    1,229,491       1,109,954       1,914,934       1,960,023  
 General and administrative
    763,825       576,073       1,397,312       1,022,570  
 Interest
    4,005,795       2,265,842       8,538,994       4,507,220  
 Depreciation and amortization
    8,977,551       7,999,787       18,150,293       15,599,376  
 Impairment loss
    1,282,568       -       1,282,568       -  
 (Gain) loss on financial instruments
    (7,374 )     5,860       223,077       19,295  
   
 Total expenses
    17,344,090       12,724,339       33,672,294       24,575,336  
   
 Net income
    6,718,987       5,770,835       13,386,522       10,208,858  
   
 Less: Net income attributable to noncontrolling interests
    1,554,917       2,057,940       3,668,786       3,424,285  
   
 Net income attributable to Fund Twelve
  $ 5,164,070     $ 3,712,895     $ 9,717,736     $ 6,784,573  
   
 Net income attributable to Fund Twelve allocable to:
                               
 Additional Members
  $ 5,112,429     $ 3,675,766     $ 9,620,558     $ 6,716,727  
 Manager
    51,641       37,129       97,178       67,846  
   
    $ 5,164,070     $ 3,712,895     $ 9,717,736     $ 6,784,573  
   
 Weighted average number of additional shares of
                               
 limited liability company interests outstanding
    348,709       342,374       348,709       318,735  
   
 Net income attributable to Fund Twelve per weighted
                               
 average additional share of limited liability company
                               
 interests outstanding
  $ 14.66     $ 10.74     $ 27.59     $ 21.07  

 

See accompanying notes to consolidated financial statements.


 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Changes in Equity
 
   
   
   
Members' Equity
             
   
 
               
Accumulated
                   
   
Additional Shares of
   
 
         
Other
   
Total
   
 
   
 
 
   
Limited Liability
Company Interests
   
Additional
Members
   
Manager
   
Comprehensive
Loss
   
Members' Equity
   
Noncontrolling
Interests
   
Total
Equity
 
 Balance, December 31, 2009
    348,709     $ 278,405,366     $ (301,542 )   $ (5,024,109 )   $ 273,079,715     $ 68,555,510     $ 341,635,225  
   
 Comprehensive income:
                                                       
Net income
    -       4,508,129       45,537       -       4,553,666       2,113,869       6,667,535  
 Change in valuation of
                                                       
 derivative instruments
    -       -       -       (1,043,025 )     (1,043,025 )     (36,768 )     (1,079,793 )
 Currency translation adjustment
    -       -       -       (621,581 )     (621,581 )     -       (621,581 )
 Total comprehensive income
                                    2,889,060       2,077,101       4,966,161  
 Cash distributions
    -       (8,412,614 )     (84,976 )     -       (8,497,590 )     (3,800,206 )     (12,297,796 )
 Investment in joint venture by
                                                       
 noncontrolling interest
    -       -       -       -       -       111,987       111,987  
                                                         
 Balance, March 31, 2010 (unaudited)
    348,709       274,500,881       (340,981 )     (6,688,715 )     267,471,185       66,944,392       334,415,577  
                                                         
 Comprehensive income:
                                                       
Net income
    -       5,112,429       51,641       -       5,164,070       1,554,917       6,718,987  
 Change in valuation of
                                                       
 derivative instruments
    -       -       -       (1,838,355 )     (1,838,355 )     (21,680 )     (1,860,035 )
 Currency translation adjustment
    -       -       -       (870,839 )     (870,839 )     -       (870,839 )
 Total comprehensive income
                                    2,454,876       1,533,237       3,988,113  
 Cash distributions
    -       (8,412,615 )     (84,976 )     -       (8,497,591 )     (3,448,829 )     (11,946,420 )
 Shares of limited liability
                                                       
 company interests repurchased
    (59 )     (47,129 )     -       -       (47,129 )     -       (47,129 )
 Investment in joint ventures by
                                                       
 noncontrolling interests
    -       (25,720 )     (260 )     -       (25,980 )     2,715,929       2,689,949  
   
 Balance, June 30, 2010 (unaudited)
    348,650     $ 271,127,846     $ (374,576 )   $ (9,397,909 )   $ 261,355,361     $ 67,744,729     $ 329,100,090  

 
See accompanying notes to consolidated financial statements.
 

 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Cash Flows
 
(unaudited)
 
   
   
   
   
Six Months Ended June 30,
 
   
2010
   
2009
 
   
 Cash flows from operating activities:
           
 Net income
  $ 13,386,522     $ 10,208,858  
 Adjustments to reconcile net income to net cash provided by
               
 operating activities:
               
 Rental income paid directly to lenders by lessees
    (17,485,218 )     (16,916,011 )
 Finance income
    (7,685,324 )     (3,447,921 )
 Income from investment in joint venture
    (297,203 )     (292,866 )
 Depreciation and amortization
    18,150,293       15,599,376  
 Interest expense on non-recourse financing paid directly
               
 to lenders by lessees
    3,339,777       3,974,954  
 Interest expense from amortization of debt financing costs
    608,739       428,255  
 Accretion of seller's credit and other
    1,120,003       60,261  
 Impairment loss
    1,282,568       -  
 Gain on guaranty
    (2,162,795 )      -  
 Loss on assets held for sale, net
    297,864       -  
 Loss on financial instruments
    223,077       19,295  
 Changes in operating assets and liabilities:
               
 Collection of finance leases
    15,225,426       6,885,840  
 Prepaid acquisition fees
    239,297       (2,662,032 )
 Other assets, net
    (3,489,619 )     (2,499,180 )
 Accrued expenses and other current liabilities
    (364,839 )     (133,628 )
 Deferred revenue
    (225,651 )     (2,200,335 )
 Due to/from Manager and affiliates, net
    (260,704 )     (179,549 )
 Distributions from joint venture
    297,203       292,866  
   
 Net cash provided by operating activities
    22,199,416       9,138,183  
   
 Cash flows from investing activities:
               
 Purchase of equipment
    (4,474,998 )     (53,977,555 )
 Proceeds from sale of equipment
    539,368       -  
 Distributions received from joint venture in excess of profits
    371,945       376,282  
 Restricted cash
    (375,932 )     (569,796 )
 Investment in notes receivable
    -       (21,239,728 )
 Repayment of notes receivable
    10,056,600       8,771,761  
   
 Net cash provided by (used in) investing activities
    6,116,983       (66,639,036 )
   
 Cash flows from financing activities:
               
 Proceeds from non-recourse long-term debt
    12,448,656       -  
 Repayments of non-recourse long-term debt
    (6,553,125 )     -  
 Issuance of additional shares of limited liability company interests,
               
 net of sales and offering expenses
    -       66,979,190  
 Shares of limited liability company interests repurchased
    (47,129 )     (85,669 )
 Investment in joint ventures by noncontrolling interests
    2,801,936       -  
 Distributions to noncontrolling interests
    (7,249,035 )     (5,882,791 )
 Cash distributions to members
    (16,995,181 )     (14,876,970 )
   
 Net cash (used in) provided by financing activities
    (15,593,878 )     46,133,760  
   
 Effects of exchange rates on cash and cash equivalents
    (13,512 )     28,419  
   
 Net increase (decrease) in cash and cash equivalents
    12,709,009       (11,338,674 )
   
 Cash and cash equivalents, beginning of period
    27,075,059       45,408,378  
   
 Cash and cash equivalents, end of period
  $ 39,784,068     $ 34,069,704  


See accompanying notes to consolidated financial statements.
 

ICON Leasing Fund Twelve, LLC
 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Cash Flows
 
(unaudited)
 
   
   
   
   
Six Months Ended June 30,
 
   
2010
   
2009
 
   
 Supplemental disclosure of cash flow information:
           
   
 Cash paid during the period for interest
  $ 3,599,649     $ 43,750  
   
 Supplemental disclosure of non-cash investing and financing activities:
               
   
 Principal and interest on non-recourse long-term debt
               
 paid directly to lenders by lessees
  $ 17,485,218     $ 16,916,011  
   
 Equipment purchased with non-recourse long-term debt paid directly by lender
  $ 24,522,223     $ 34,800,000  
   
 Equipment purchased with subordinated financing provided by seller
  $ 10,577,777     $ 27,500,000  
   
 Investment in joint venture by noncontrolling interest
  $ -     $ 18,381,998  

 
See accompanying notes to consolidated financial statements.
5

(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(1)
Organization

ICON Leasing Fund Twelve, LLC (the “LLC”) was formed on October 3, 2006 as a Delaware limited liability company. The LLC is engaged in one business segment, the business of purchasing equipment and leasing it to third parties, providing equipment and other financing, acquiring equipment subject to lease and, to a lesser degree, acquiring ownership rights to items of leased equipment at lease expiration.  The LLC will continue until December 31, 2026, unless terminated sooner.

The LLC’s principal investment objective is to obtain the maximum economic return from its investments for the benefit of its members.  To achieve this objective, the LLC: (i) acquires a diversified portfolio by making investments in leases, notes receivable and other financing transactions; (ii) makes monthly cash distributions, at the LLC’s manager’s discretion, to its members commencing with each member’s admission to the LLC, continuing until the end of the operating period; (iii) reinvests substantially all undistributed cash from operations and cash from sales of equipment and other financing transactions during the operating period; and (iv) will dispose of its investments and distribute the excess cash from such dispositions to its members beginning with the commencement of the liquidation period.  The LLC is currently in its operating period, which commenced on May 1, 2009.

The manager of the LLC is ICON Capital Corp., a Delaware corporation (the “Manager”). The Manager manages and controls the business affairs of the LLC, including, but not limited to, the equipment leases and other financing transactions that the LLC enters into pursuant to the terms of the LLC’s limited liability company agreement (the “LLC Agreement”).  Additionally, the Manager has a 1% interest in the profits, losses, cash distributions and liquidation proceeds of the LLC.

Members’ capital accounts are increased for their initial capital contribution plus their proportionate share of earnings and decreased by their proportionate share of losses and distributions. Profits, losses, cash distributions and liquidation proceeds are allocated 99% to the additional members and 1% to the Manager until each additional member has (a) received cash distributions and liquidation proceeds sufficient to reduce its adjusted capital account to zero and (b) received, in addition, other distributions and allocations that would provide an 8% per year cumulative return, compounded daily, on its outstanding adjusted capital account. After such time, distributions will be allocated 90% to the additional members and 10% to the Manager.

(2)
Basis of Presentation and Consolidation
 
The accompanying consolidated financial statements of the LLC have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form 10-Q. In the opinion of the Manager, all adjustments considered necessary for a fair presentation have been included. These consolidated financial statements should be read together with the consolidated financial statements and notes included in the LLC’s Annual Report on Form 10-K for the year ended December 31, 2009. The results for the interim period are not necessarily indicative of the results for the full year.

The consolidated financial statements include the accounts of the LLC and its majority-owned subsidiaries and other controlled entities. All intercompany accounts and transactions have been eliminated in consolidation. In joint ventures where the LLC has majority ownership, the financial condition and results of operations of the joint venture are consolidated.  Noncontrolling interest represents the minority owner’s proportionate share of its equity in the joint venture. The noncontrolling interest is adjusted for the minority owner’s share of the earnings, losses, investments and distributions of the joint venture.
 
 
6

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(2)
Basis of Presentation and Consolidation - continued
 
The LLC accounts for its noncontrolling interest in a joint venture where the LLC has influence over financial and operational matters, generally 50% or less ownership interest, under the equity method of accounting. In such case, the LLC’s original investment is recorded at cost and adjusted for its share of earnings, losses and distributions.  The LLC accounts for its investment in a joint venture where the LLC has virtually no influence over financial and operational matters using the cost method of accounting.  In such case, the LLC’s original investment is recorded at cost and any distributions received are recorded as revenue.  All of the LLC’s investments in joint ventures are subject to its impairment review policy.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates primarily include the determination of allowance for doubtful accounts, depreciation and amortization, impairment losses, estimated useful lives and residual values.  Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to the accompanying consolidated financial statements in prior periods to conform to the current presentation.

Recently Adopted Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standard Codification 810 – Consolidation (“ASC 810”). The update amends the consolidation guidance applicable to variable interest entities (“VIEs”) and changes how a reporting entity evaluates whether an entity is considered the primary beneficiary of a VIE and is therefore required to consolidate such VIE. ASC 810 also requires assessments at each reporting period of which party within the VIE is considered the primary beneficiary and requires a number of new disclosures related to VIEs.  The adoption of this guidance, effective January 1, 2010, did not have a material impact on the LLC’s consolidated financial statements.
 
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), amending Accounting Standards Codification 820. ASU 2010-06 requires new disclosures and clarifies existing disclosures on fair value measurements.  It requires new disclosures including (i) separate disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and a description of the reasons for the transfers and (ii) separate presentation of information about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements. This update also clarifies existing disclosures requiring the LLC to (i) determine each class of assets and liabilities based on the nature and risks of the investments rather than by major security type and (ii) for each class of assets and liabilities, disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material effect on the LLC’s consolidated financial statements.
 
 
7

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(3)
Net Investment in Finance Leases
 
Net investment in finance leases consisted of the following:

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
 Minimum rents receivable
  $ 200,793,937     $ 203,775,000  
 Estimated residual values
    17,664,044       16,545,104  
 Initial direct costs, net
    5,448,731       5,663,856  
 Unearned income
    (67,250,117 )     (69,403,740 )
   
Net investment in finance leases
    156,656,595       156,580,220  
   
Less:  Current portion of net
               
           investment in finance leases
    19,678,658       17,565,862  
                 
 Net investment in finance leases,
               
           less current portion
  $ 136,977,937     $ 139,014,358  
 
Manufacturing Equipment

Due to the global downturn in the automotive industry, Sealynx Automotive Transieres SAS (“Sealynx”) requested a restructuring of its lease payments during the third quarter of 2009 and the LLC agreed to reduce Sealynx’s lease payments. On January 4, 2010, the LLC restructured Sealynx’s payment obligations under the lease to provide it with cash flow flexibility while at the same time attempting to preserve the LLC’s projected economic return on this investment. As additional security for restructuring the payment obligations, ICON French Equipment II, LLC, a wholly-owned subsidiary of the LLC (“ICON French Equipment II”), received an additional mortgage on certain real property owned by Sealynx located in Charleval, France.  On July 5, 2010, Sealynx filed for a conciliation procedure with the Commercial Court of Nanterre requesting it to repay, over a two year period, approximately $1,900,000 of rental payments currently due to the LLC on July 1, 2010.  The Commercial Court of Nanterre has not yet ruled on Sealynx’s request.

Marine Vessels and Equipment

On December 18, 2009, the LLC, through its wholly-owned subsidiary, ICON Faulkner, LLC (“ICON Faulkner”), entered into a Memorandum of Agreement (the “Faulkner MOA”) to purchase the pipelay barge, the Leighton Faulkner, from Leighton Contractors (Asia) Limited (“Leighton Contractors”) for $20,000,000. Simultaneously with the execution of the Faulkner MOA, ICON Faulkner entered into a bareboat charter with Leighton Contractors for a period of ninety-six months commencing on January 5, 2010. The purchase price for the Leighton Faulkner consisted of $1,000,000 in cash and $19,000,000 in non-recourse indebtedness, which included $12,000,000 of senior debt pursuant to a senior facility agreement with Standard Chartered Bank, Singapore Branch (“SCB”) and a $7,000,000 subordinated seller’s credit. The loan from SCB has a term of five years, with an option to extend for another three years. The interest rate has been fixed pursuant to a swap agreement. All of Leighton Contractors’ obligations are guaranteed by its ultimate parent company, Leighton Holdings Limited (“Leighton Holdings”). The LLC paid an acquisition fee to its Manager of $600,000 relating to this transaction.

On March 31, 2010, the LLC, through its wholly-owned subsidiary, ICON Mynx Pte. Ltd. (“ICON Mynx”), entered into an agreement with Leighton Offshore Pte. Ltd. (“Leighton Offshore”) to upgrade the accommodation and work barge, the Leighton Mynx, by acquiring certain equipment and making certain upgrades to the Leighton Mynx in an amount equal to $20,000,000. The upgrades include the addition of a helicopter deck, as well as a new crane and accommodation unit. The cost of the upgrades will be financed with $2,000,000 in cash and $18,000,000 in non-recourse indebtedness, which includes $4,000,000 of subordinated contractor’s credit and $14,000,000 of senior debt pursuant to an amended senior facility agreement (the “Amended Facility Agreement”) with SCB.  The Amended Facility Agreement will be repaid in quarterly installments beginning on March 31, 2011 and interest will be fixed pursuant to a swap agreement with SCB. In consideration for financing the upgrades, ICON Mynx and Leighton Offshore agreed to amend the bareboat charter for the Leighton Mynx to, among other things, increase the amount of monthly charter hire payable by Leighton Offshore and increase the value of the purchase option price at the expiry of the charter. All of Leighton Offshore's obligations are guaranteed by Leighton Holdings. The LLC paid an acquisition fee to its Manager of $600,000 relating to this transaction.

 
8

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(3)
Net Investment in Finance Leases - continued
 
Non-cancelable minimum annual amounts due on investment in finance leases over the next five years were as follows at June 30, 2010:

For the period July 1 to December 31, 2010
  $ 17,303,671  
For the year ending December 31, 2011
    29,851,718  
For the year ending December 31, 2012
    22,998,434  
For the year ending December 31, 2013
    20,039,500  
For the year ending December 31, 2014
    24,056,000  
Thereafter
    86,544,614  
         
    $ 200,793,937  
 
(4)
Leased Equipment at Cost
 
Leased equipment at cost consisted of the following:

   
June 30,
   
December 31,
 
   
2010
   
2009
 
Marine vessels and equipment
  $ 344,874,833     $ 316,103,074  
Manufacturing equipment
    19,559,700       19,559,700  
Mining equipment
    20,122,452       20,122,452  
Telecommunications equipment
    6,116,887       6,116,887  
Motor coaches
    5,473,082       5,473,082  
Gas compressors
    11,611,520       11,611,520  
      407,758,474       378,986,715  
Less: Accumulated depreciation
    60,432,515       43,506,562  
                 
    $ 347,325,959     $ 335,480,153  

Depreciation expense was $8,375,607 and $7,617,357 for the three months ended June 30, 2010 and 2009, respectively. Depreciation expense was $16,925,953 and $14,929,094 for the six months ended June 30, 2010 and 2009, respectively.

Manufacturing Equipment

On January 13, 2010, the LLC further amended the lease with LC Manufacturing, LLC (“LC Manufacturing”) to reduce LC Manufacturing’s payment obligations under the lease and to provide the LLC with an excess cash flow sweep in the event that excess cash is available in the future.  On May 31, 2010, MW Universal, Inc. (“MWU”) sold its equity interest in LC Manufacturing to an entity controlled by LC Manufacturing’s management and the personal guaranty of MWU’s principal was reduced to $6,500,000 with respect to LC Manufacturing.  On July 26, 2010, the LLC, in consideration for all amounts due under the lease, sold the equipment the LLC leased to the MWU affiliate, Metavation, LLC (“Metavation”), and terminated the lease.

 
9

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(4)
Leased Equipment at Cost - continued

Gas Compressors

On April 1, 2010, the LLC sold to an unaffiliated third party, Hardwood Partners, LLC (“Hardwood Partners”), a 5.460% nonvoting, noncontrolling interest in ICON Atlas, LLC (“ICON Atlas”) for the purchase price of $550,000.  As a result, the LLC recorded a gain on sale in the amount of approximately $1,000, which was included in members’ equity, and the LLC’s economic interest in ICON Atlas was reduced to 49.540%, although the LLC's controlling interest remained at 55%.

Telecommunications Equipment

On June 29, 2010, the LLC, through its wholly-owned subsidiary, ICON Broadview, LLC (“ICON Broadview”), entered into a master lease agreement for information technology equipment with Broadview Networks Holdings, Inc. and Broadview Networks Inc. (collectively, “Broadview”). During the period beginning June 29, 2010 through December 31, 2010, ICON Broadview will acquire up to four schedules of information technology equipment, which will be leased to Broadview. The aggregate purchase price for the equipment will be equal to at least $5,000,000.  The LLC paid an acquisition fee to its Manager of $150,000 relating to this transaction.

On July 15, 2010, ICON Broadview purchased information technology equipment from Juniper Networks (US), Inc. for the purchase price of approximately $602,000 and simultaneously leased the equipment to Broadview.  The base term of the schedule is for a period of thirty-six months, which commenced on August 1, 2010.

Aggregate annual minimum future rentals receivable from the LLC’s non-cancelable leases over the next five years consisted of the following at June 30, 2010:
 
For the period July 1 to December 31, 2010
  $ 32,097,260  
For the year ending December 31, 2011
    58,244,482  
For the year ending December 31, 2012
    52,822,912  
For the year ending December 31, 2013
    37,269,673  
For the year ending December 31, 2014
    12,404,850  
Thereafter
    21,260,000  
    $ 214,099,177  
 
(5)
Notes Receivable
 
Note Receivable Secured by a Machine Paper Coating Manufacturing Line

On February 26, 2010, the LLC, through its wholly-owned subsidiary, ICON Appleton, LLC (“ICON Appleton”), amended certain financial covenants in the loan agreement with Appleton Papers, Inc. (“Appleton”).  In consideration for amending the loan agreement, the LLC received an amendment fee from Appleton in the amount of approximately $117,000.

On April 1, 2010, the LLC sold to Hardwood Partners a 5.1% noncontrolling interest in ICON Appleton for the purchase price of $1,000,000.  As a result, the LLC recorded a gain on sale in the amount of approximately $6,000, which was included in members’ equity, and the LLC’s controlling interest in ICON Appleton was reduced to 94.900%.
 
 
10

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(5)
Notes Receivable - continued
 
On July 20, 2010, the LLC amended the loan agreement to release two borrowers that were being sold by Appleton to a third party, American Plastics Company, Inc. and New England Extrusion, Inc.  In consideration for amending the loan agreement, the LLC received an amendment fee in the amount of $40,000 from Appleton.

Notes Receivable Secured by Analog Seismic System Equipment

On April 1, 2010, the LLC sold to Hardwood Partners a 2.913% noncontrolling interest in ICON ION, LLC (“ICON ION”) for the purchase price of $550,000.  As a result, the LLC recorded a gain on sale in the amount of approximately $4,000, which was included in members’ equity, and the LLC’s controlling interest in ICON ION was reduced to 52.087%.

Note Receivable Secured by Rail Support Construction Equipment

On April 1, 2010, the LLC sold to Hardwood Partners a 5.873% nonvoting, noncontrolling interest in ICON Quattro, LLC (“ICON Quattro”) for the purchase price of $550,000.  As a result, the LLC recorded a loss on sale in the amount of approximately $37,000, which was included in members’ equity, and the LLC’s economic interest in ICON Quattro was reduced to 49.127%, although the LLC's controlling interest remained at 55%.

Note Receivable Secured by Aframax Tankers

On June 30, 2010, the LLC, through its wholly-owned subsidiary, ICON Palmali 12, LLC (“ICON Palmali 12”), and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (“Fund Fourteen”), an entity managed by the Manager, through its wholly-owned subsidiary, ICON Palmali 14, LLC (“ICON Palmali 14”), participated in a $96,000,000 loan facility by making second priority secured term loans to Ocean Navigation 5 Co. Ltd. and Ocean Navigation 6 Co. Ltd. (collectively, “Ocean Navigation”) pursuant to a loan agreement (the “Palmali Loan Agreement”).  The proceeds of the loans will be used by Ocean Navigation to purchase two Aframax tanker vessels, the Shah Deniz and the Absheron (each a “Vessel,” and collectively, the “Vessels”).

The aggregate principal amounts of ICON Palmali 12’s and ICON Palmali 14’s loans are $9,600,000 and $14,400,000, respectively, half of which will be made available to Ocean Navigation for the purchase price of each Vessel.  Interest on the secured term loans accrues at a rate of 15.25% per year and is payable quarterly in arrears for a period of six years from the delivery date of each Vessel.  The entire principal amounts will be due at the maturity of the loans.  Ocean Navigation has the option to prepay the loans in whole or in part following the third anniversary of the date of the first advance for each Vessel.

On July 28, 2010, ICON Palmali 12 and ICON Palmali 14 made loans in the amounts of $4,800,000 and $7,200,000, respectively, to Ocean Navigation for the purchase of the Shah Deniz.  In connection with the loans, ICON Palmali 12 and ICON Palmali 14 collected (i) arrangement fees in the amounts of $240,000 and $360,000, respectively, and (ii) unused commitment fees of 2% per year on the undrawn loan amounts. In addition, Ocean Navigation is required to pay an unused commitment fee of 2% per year of the undrawn loan amounts from July 29, 2010 through September 30, 2010, 4% per year from October 1, 2010 through December 31, 2010 and 6% per year from January 1, 2011 through March 31, 2011.

 
11

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(5)
Notes Receivable - continued
 
The loans are secured by, among other things, second priority security interests in (i) the Vessels, (ii) the earnings from the Vessels and (iii) the equity interests of Ocean Navigation. In addition, Ocean Navigation or the Palmali Guarantors (as defined below) must provide ICON Palmali 12 and ICON Palmali 14 additional security for the loans with a fair market value of not less than $10,000,000 within twelve months of the date of the Palmali Loan Agreement.  All of Ocean Navigation’s obligations under the Palmali Loan Agreement are guaranteed by its direct and indirect parent companies and affiliates, Palmali Holding Company Limited, Palmali International Holding Company Limited, Palocean Shipping Limited and Ocean Holding Company Limited (collectively, the “Palmali Guarantors”). 

Simultaneously with ICON Palmali 12’s and ICON Palmali 14’s loans, DVB Bank SE (“DVB”) will, pursuant to the Palmali Loan Agreement, lend $72,000,000 to Ocean Navigation (the “DVB Loan”) for the purchase of the Vessels.  The DVB Loan is secured by, among other things, a first priority security interest in (x) the Vessels, (y) the earnings from the Vessels and (z) the equity interests of Ocean Navigation. The proceeds from the enforcement of any security will be applied (i) first, to pay all costs and expenses incurred by DVB, ICON Palmali 12 and ICON Palmali 14, (ii) second, to DVB for accrued and unpaid interest, (iii) third, to DVB for unpaid principal, (iv) fourth, pro rata to ICON Palmali 12 and ICON Palmali 14 for accrued and unpaid interest, and (v) fifth, pro rata to ICON Palmali 12 and ICON Palmali 14 for unpaid principal.  The LLC paid an acquisition fee to its Manager of approximately $1,388,000 relating to ICON Palmali 12’s investment in this transaction.

(6)
Assets Held for Sale
 
On June 2, 2010, ICON EAR, LLC (“ICON EAR”), a joint venture owned 55% by the LLC and 45% by ICON Leasing Fund Eleven, LLC (“Fund Eleven”), in conjunction with ICON EAR II, LLC (“ICON EAR II”), a wholly-owned subsidiary of Fund Eleven, sold a parcel of real property in Jackson Hole, Wyoming that was received as additional security under their respective leases with Equipment Acquisition Resources, Inc. (“EAR”).  The real property was sold for the aggregate net purchase price of approximately $757,000.  As a result, the LLC recognized a loss on such assets held for sale of approximately $298,000.  This amount was recorded to loss on assets held for sale on the consolidated statements of operations.  In addition, on June 7, 2010, ICON EAR and ICON EAR II received judgments in New York State Supreme Court against two principals of EAR who had guaranteed EAR’s lease obligations.  ICON EAR and ICON EAR II are in the process of having the judgments recognized in Illinois, where the principals live.  At this time, it is not possible to determine the abilities of ICON EAR and ICON EAR II to collect the amounts due under their respective leases from EAR’s principals.

The Manager periodically reviews the significant assets in the LLC’s portfolio to determine whether events or changes in circumstances indicate that the net book value of an asset may not be recoverable. In light of recent developments in the real estate market and the sale of a parcel of real property located in Jackson Hole, Wyoming on June 2, 2010, the Manager reviewed the LLC’s investment in ICON EAR.

Based on the Manager’s review, the net book value of the remaining parcels of real property located in Jackson Hole, Wyoming exceeded their fair market value.  As a result, ICON EAR recognized a non-cash impairment charge of approximately $1,283,000.
 
 
12

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(7)
Non-Recourse Long-Term Debt

The LLC had the following non-recourse long-term debt:
 
   
June 30,
   
December 31,
 
   
2010
   
2009
 
 ICON Mayon, LLC
  $ 10,098,559     $ 12,341,338  
 ICON Aegean Express, LLC
    13,988,750       15,039,415  
 ICON Arabian Express, LLC
    13,988,750       15,039,415  
 ICON Eagle Holdings, LLC
    40,944,562       45,743,677  
 ICON Eagle Carina Holdings, LLC
    19,813,682       22,229,602  
 ICON Eagle Corona Holdings, LLC
    20,649,893       23,107,724  
 ICON Mynx, LLC
    17,847,223       5,700,000  
 ICON Stealth, LLC
    25,560,000       27,360,000  
 ICON Eclipse, LLC
    41,171,875       45,000,000  
 ICON Ionian, LLC
    4,950,000       5,500,000  
 ICON Coach, LLC
    2,743,737       3,206,667  
 ICON Global Crossing IV, LLC
    12,448,656       -  
 ICON Faulkner, LLC
    12,000,000       -  
                 
 Total non-recourse long-term debt
    236,205,687       220,267,838  
                 
 Less:  Current portion of non-recourse long-term debt
    44,539,395       43,305,938  
                 
 Total non-recourse long-term debt, less current portion
  $ 191,666,292     $ 176,961,900  
 
As of June 30, 2010 and December 31, 2009, the LLC had capitalized net debt financing costs of $3,180,206 and $3,699,981, respectively. For the three months ended June 30, 2010 and 2009, the amortization of debt financing costs resulted in the recognition of interest expense of $298,562 and $192,614, respectively. For the six months ended June 30, 2010 and 2009, the amortization of debt financing costs resulted in the recognition of interest expense of $608,739 and $428,255, respectively.

ICON Global Crossing IV, LLC

On June 25, 2010, the LLC, through its wholly-owned subsidiary, ICON Global Crossing IV, LLC (“ICON Global Crossing IV”), borrowed approximately $12,449,000 from CapitalSource Bank (“CapitalSource”).  In consideration for making the loan, CapitalSource received a first priority security interest in ICON Global Crossing IV's interest in Schedules 1, 2, 3, 5, 12 and 13 to ICON Global Crossing IV’s master lease agreement with Global Crossing Telecommunications, Inc. (“Global Crossing”).  The loan is payable monthly in arrears beginning on July 1, 2010 through March 1, 2012.  Interest is payable at a rate of 9% per year throughout the term of the loan.

The aggregate maturities of non-recourse long-term debt over the next five years were as follows at June 30, 2010:
 
 
For the period July 1 to December 31, 2010
  $ 26,680,031  
For the year ending December 31, 2011
    56,357,792  
For the year ending December 31, 2012
    43,333,839  
For the year ending December 31, 2013
    51,014,924  
For the year ending December 31, 2014
    53,786,846  
Thereafter
    5,032,255  
    $ 236,205,687  

 
13

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(8)
Revolving Line of Credit, Recourse

The LLC and certain entities managed by the Manager, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC (“Fund Ten”), Fund Eleven and Fund Fourteen (collectively, the “Borrowers”), are parties to a Commercial Loan Agreement, as amended (the “Loan Agreement”), with California Bank & Trust (“CB&T”). The Loan Agreement provides for a revolving line of credit of up to $30,000,000 pursuant to a senior secured revolving loan facility (the “Facility”), which is secured by all assets of the Borrowers not subject to a first priority lien, as defined in the Loan Agreement. Each of the Borrowers is jointly and severally liable for all amounts borrowed under the Facility. At June 30, 2010, no amounts were accrued related to the LLC’s joint and several obligations under the Facility. Amounts available under the Facility are subject to a borrowing base that is determined, subject to certain limitations, on the present value of the future receivables under certain lease agreements and loans in which the Borrowers have a beneficial interest.

The Facility expires on June 30, 2011 and the Borrowers may request a one year extension to the revolving line of credit within 390 days of the then-current expiration date, but CB&T has no obligation to extend. The interest rate for general advances under the Facility is CB&T’s prime rate and the interest rate on up to five separate non-prime rate advances that are permitted to be made under the Facility is the rate at which U.S. dollar deposits can be acquired by CB&T in the London Interbank Eurocurrency Market plus 2.5% per year, provided that neither interest rate is permitted to be less than 4.0% per year. The interest rate at June 30, 2010 was 4.0%. In addition, the Borrowers are obligated to pay a quarterly commitment fee of 0.50% on unused commitments under the Facility.

Aggregate borrowings by all Borrowers under the Facility amounted to $1,350,000 at June 30, 2010, all of which was borrowed by Fund Ten. Subsequent to June 30, 2010, Fund Ten repaid $1,350,000, which reduced its outstanding loan balance to $0.

Pursuant to the Loan Agreement, the Borrowers are required to comply with certain covenants.  At June 30, 2010, the Borrowers were in compliance with all covenants.

(9)
Transactions with Related Parties
 
The LLC entered into certain agreements with its Manager and ICON Securities Corp., a wholly-owned subsidiary of the Manager and dealer-manager of the LLC’s offering (“ICON Securities”), whereby the LLC paid certain fees and reimbursements to these parties.  The Manager was entitled to receive an organizational and offering expense allowance of 3.5% of capital raised up to $50,000,000, 2.5% of capital raised between $50,000,001 and $100,000,000, 1.5% of capital raised between $100,000,001 and $200,000,000, 1.0% of capital raised between $200,000,001 and $250,000,000 and 0.5% of capital raised over $250,000,000.  ICON Securities was entitled to receive a 2% underwriting fee from the gross proceeds from sales of shares of limited liability company interests (“Shares”) to additional members.

In accordance with the terms of the LLC Agreement, the LLC pays or paid the Manager (i) management fees ranging from 1% to 7% based on a percentage of the rentals and other contractual payments recognized either directly by the LLC or through its joint ventures and (ii) acquisition fees, through the end of the operating period, of 3% of the purchase price of the LLC’s investments.  In addition, the Manager is reimbursed for administrative expenses incurred in connection with the LLC’s operations. The Manager also has a 1% interest in the LLC’s profits, losses, cash distributions and liquidation proceeds.

 
14

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(9)
Transactions with Related Parties - continued
 
The Manager performs certain services relating to the management of the LLC’s equipment leasing and other financing activities.  Such services include, but are not limited to, the collection of lease payments from the lessees of the equipment or loan payments from borrowers, re-leasing services in connection with equipment which is off-lease, inspections of the equipment, liaising with and general supervision of lessees and borrowers to ensure that the equipment is being properly operated and maintained, monitoring performance by the lessees of their obligations under the leases and the payment of operating expenses.

Administrative expense reimbursements are costs incurred by the Manager or its affiliates that are necessary to the LLC’s operations.  These costs include the Manager’s and its affiliates’ legal, accounting, investor relations and operations personnel costs, as well as professional fees and other costs that are charged to the LLC based upon the percentage of time such personnel dedicate to the LLC.  Excluded are salaries and related costs, office rent, travel expenses and other administrative costs incurred by individuals with a controlling interest in the Manager.

Fees and other expenses paid or accrued by the LLC to the Manager or its affiliates were as follows:

           
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 Entity
 
 Capacity
 
 Description
 
2010
   
2009
   
2010
   
2009
 
 ICON Capital Corp.
 
 Manager
 
 Organizational and
                       
       
    offering expense allowance (1)
  $ -     $ 150,820     $ -     $ 372,809  
 ICON Securities Corp.
 
 Managing broker-dealer
 
 Underwriting fees (1)
    -       603,280       -       1,441,563  
 ICON Capital Corp.
 
 Manager
 
 Acquisition fees (2)
    1,538,400       5,422,675       2,138,400       7,228,249  
 ICON Capital Corp.
 
 Manager
 
 Administrative expense
                               
       
    reimbursements (3)
    1,229,491       1,109,954       1,914,934       1,960,023  
 ICON Capital Corp.
 
 Manager
 
 Management fees (3)
    1,092,234       766,823       2,165,116       1,466,852  
            $ 3,860,125     $ 8,053,552     $ 6,218,450     $ 12,469,496  
                                         
 (1) Amount charged directly to members' equity.
                               
 (2) Amount capitalized and amortized to operations over the estimated service period in accordance with the LLC's accounting policies.
                 
 (3) Amount charged directly to operations.
                                   

At June 30, 2010, the LLC had a net receivable of $1,941,198 due from Manager and affiliates, which consisted primarily of the accrued obligations from Fund Ten and Fund Eleven in connection with the MWU credit support agreement (see Note 13).

(10)
Derivative Financial Instruments
 
The LLC may enter into derivative transactions for purposes of hedging specific financial exposures, including movements in foreign currency exchange rates and changes in interest rates on its non-recourse long-term debt. The LLC enters into these instruments only for hedging underlying exposures. The LLC does not hold or issue derivative financial instruments for purposes other than hedging, except for warrants, which are not hedges.  Certain derivatives may not meet the established criteria to be designated as qualifying accounting hedges, even though the LLC believes that these are effective economic hedges.

 
15

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(10)
Derivative Financial Instruments - continued
 
 The LLC accounts for derivative financial instruments in accordance with the accounting pronouncements that established accounting and reporting standards for derivative financial instruments.  These accounting pronouncements require the LLC to recognize all derivatives as either assets or liabilities on the consolidated balance sheets and measure those instruments at fair value. The LLC recognizes the fair value of all derivatives as either assets or liabilities on the consolidated balance sheets and changes in the fair value of such instruments are recognized immediately in earnings unless certain accounting criteria established by the accounting pronouncements are met. These criteria demonstrate that the derivative is expected to be highly effective at offsetting changes in the fair value or expected cash flows of the underlying exposure at both the inception of the hedging relationship and on an ongoing basis and include an evaluation of the counterparty risk and the impact, if any, on the effectiveness of the derivative. If these criteria are met, which the LLC must document and assess at inception and on an ongoing basis, the LLC recognizes the changes in fair value of such instruments in accumulated other comprehensive income (loss) (“AOCI”), a component of equity on the consolidated balance sheets. Changes in the fair value of the ineffective portion of all derivatives are recognized immediately in earnings.

Interest Rate Risk

The LLC’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its variable non-recourse debt. The LLC’s hedging strategy to accomplish this objective is to match the projected future cash flows with the underlying debt service. Interest rate swaps designated as cash flow hedges involve the receipt of floating-rate interest payments from a counterparty in exchange for the LLC making fixed interest rate payments over the life of the agreements without exchange of the underlying notional amount. 

As of June 30, 2010, the LLC had eleven floating-to-fixed interest rate swaps, one relating to each of ICON Stealth Pte. Ltd. (“ICON Stealth”), ICON Eclipse Pte. Ltd. (“ICON Eclipse”), ICON Eagle Corona Holdings, LLC (“ICON Corona Holdings”), ICON Eagle Carina Holdings, LLC (“ICON Carina Holdings”), ICON Aegean Express, LLC, ICON Arabian Express, LLC and ICON Mayon, LLC and two relating to each of ICON Mynx and ICON Eagle Holdings, LLC (“ICON Eagle Holdings”), that are designated and qualifying as cash flow hedges with an aggregate notional amount of $203,625,794. These interest rate swaps have maturity dates ranging from July 25, 2011 to September 30, 2014.

For these derivatives, the LLC records the gain or loss from the effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges in AOCI and such gain or loss is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings and within the same line item on the statements of operations as the impact of the hedged transaction. During the three and six months ended June 30, 2010, the LLC recorded $13,250 and $26,798 of hedge ineffectiveness in earnings, respectively. At June 30, 2010, the total unrealized loss recorded to AOCI related to the change in fair value of these interest rate swaps was $7,131,909.

During the twelve months ending June 30, 2011, the LLC estimates that $3,944,702 will be transferred from AOCI to interest expense.

 
16

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(10)
Derivative Financial Instruments – continued
 
Foreign Exchange Risk

The LLC is exposed to fluctuations in Euros and pounds sterling. The LLC, at times, uses foreign currency derivatives, including currency forward agreements, to manage its exposure to fluctuations in the USD-Euro and USD-pounds sterling exchange rates. Currency forward agreements involved fixing the foreign exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements were typically cash settled in U.S. dollars for their fair value at or close to their settlement date.

Non-designated Derivatives

As of June 30, 2010, the LLC had two interest rate swaps, one relating to each of ICON Faulkner and ICON Ionian, LLC (“ICON Ionian”), with a notional balance of $16,950,000 that are not speculative and are used to meet the LLC’s objectives in using interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements. The LLC’s strategy to accomplish this objective is to match the projected future cash flows with the underlying debt service. Each interest rate swap involves the receipt of floating-rate interest payments from a counterparty in exchange for the LLC making fixed interest rate payments over the life of the agreement without exchange of the underlying notional amount.

Additionally, the LLC holds warrants that are held for purposes other than hedging. All changes in the fair value of the interest rate swaps not designated as hedges and the warrants are recorded directly in earnings.

The table below presents the fair value of the LLC’s derivative financial instruments as well as their classification within the LLC’s consolidated balance sheets as of June 30, 2010 and December 31, 2009:

 
Asset Derivatives
 
Liability Derivatives
 
     
June 30,
   
December 31,
     
June 30,
   
December 31,
 
     
2010
   
2009
     
2010
   
2009
 
 
 Balance Sheet Location
 
Fair Value
   
Fair Value
 
 Balance Sheet Location
 
Fair Value
   
Fair Value
 
 Derivatives designated as hedging
                           
    instruments:
                           
 Interest rate swaps
    $ -     $ -  
Derivative instruments
  $ 7,817,807     $ 4,766,243  
                                     
 Derivatives not designated as hedging
                                 
    instruments:
                                   
 Interest rate swaps
    $ -     $ -  
Derivative instruments
  $ 541,223     $ 13,309  
 Warrants
Other non-current assets
  $ 344,905     $ 79,371       $ -     $ -  

 
17

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(10)
Derivative Financial Instruments - continued
 
The tables below present the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations for the three and six months ended June 30, 2010:
 
Three Months Ended June 30, 2010
                 
                       
               
Location of Gain (Loss)
 
Gain (Loss) Recognized
 
   
Amount of Gain (Loss)
 
Location of Gain (Loss)
     
Recognized in Income on
 
in Income on Derivative
 
   
Recognized in
 
Reclassified from
 
Gain (Loss) Reclassified
 
Derivative (Ineffective Portion
 
(Ineffective Portion and
 
   
AOCI on Derivative
 
AOCI into Income
 
from AOCI into Income
 
and Amounts Excluded
 
Amounts Excluded from
 
 Derivatives
 
(Effective Portion)
 
 (Effective Portion)
 
(Effective Portion)
 
 from Effectiveness Testing)
 
 Effectiveness Testing)
 
                       
 Interest rate swaps
   $ (3,119,485
 Interest expense
   $  (1,281,130 )
 (Loss) gain on financial instruments
   $ (13,250 )
 
Six Months Ended June 30, 2010
                 
                       
               
Location of Gain (Loss)
 
Gain (Loss) Recognized
 
   
Amount of Gain (Loss)
 
Location of Gain (Loss)
     
Recognized in Income on
 
in Income on Derivative
 
   
Recognized in
 
Reclassified from
 
Gain (Loss) Reclassified
 
Derivative (Ineffective Portion
 
(Ineffective Portion and
 
   
AOCI on Derivative
 
 AOCI into Income
 
from AOCI into Income
 
and Amounts Excluded
 
Amounts Excluded from
 
 Derivatives
 
(Effective Portion)
 
 (Effective Portion)
 
(Effective Portion)
 
 from Effectiveness Testing)
 
Effectiveness Testing)
 
                       
 Interest rate swaps
   $  (5,457,541 )
 Interest expense
   $ (2,576,161 )
 (Loss) gain on financial instruments
   $  (26,798 )

 
18

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(10)
Derivative Financial Instruments - continued
 
The tables below present the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations for the three and six months ended June 30, 2009:

Three Months Ended June 30, 2009
                 
                       
               
Location of Gain (Loss)
 
Gain (Loss) Recognized
 
   
Amount of Gain (Loss)
 
Location of Gain (Loss)
     
Recognized in Income on
 
in Income on Derivative
 
   
Recognized in
 
Reclassified from
 
Gain (Loss) Reclassified
 
Derivative (Ineffective Portion
 
(Ineffective Portion and
 
   
AOCI on Derivative
 
AOCI into Income
 
from AOCI into Income
 
and Amounts Excluded
 
Amounts Excluded from
 
 Derivatives
 
(Effective Portion)
 
 (Effective Portion)
 
(Effective Portion)
 
 from Effectiveness Testing)
 
 Effectiveness Testing)
 
                       
 Foreign exchange contracts
  $ (17,968 )
 (Loss) gain on financial instruments
  $ 41,414  
 (Loss) gain on financial instruments
  $ -  
 Interest rate swaps
    351,401  
 Interest expense
    (766,570 )
 (Loss) gain on financial instruments
    (16,982 )
                             
Total
  $ 333,433       $ (725,156 )     $ (16,982 )

Six Months Ended June 30, 2009
                 
                       
               
Location of Gain (Loss)
 
Gain (Loss) Recognized
 
   
Amount of Gain (Loss)
 
Location of Gain (Loss)
     
Recognized in Income on
 
in Income on Derivative
 
   
Recognized in
 
Reclassified from
 
Gain (Loss) Reclassified
 
Derivative (Ineffective Portion
 
(Ineffective Portion and
 
   
AOCI on Derivative
 
 AOCI into Income
 
from AOCI into Income
 
and Amounts Excluded
 
Amounts Excluded from
 
 Derivatives
 
(Effective Portion)
 
 (Effective Portion)
 
(Effective Portion)
 
 from Effectiveness Testing)
 
Effectiveness Testing)
 
                       
 Foreign exchange contracts
  $ (44,960 )
 (Loss) gain on financial instruments
  $ 41,414  
 (Loss) gain on financial instruments
  $ -  
 Interest rate swaps
    (318,569 )
 Interest expense
    (1,442,977 )
 (Loss) gain on financial instruments
    (33,042 )
                             
Total
  $ (363,529 )     $ (1,401,563 )     $ (33,042 )

The LLC’s derivative financial instruments not designated as hedging instruments generated a loss on financial instruments on the consolidated statements of operations for the three and six months ended June 30, 2010 of $7,374 and $223,077, respectively. The LLC’s derivative financial instruments not designated as hedging instruments generated a gain (loss) on financial instruments on the consolidated statements of operations for the three and six months ended June 30, 2009 of $2,510 and $(3,272), respectively. The net gain recorded for the three months ended June 30, 2010 was comprised of a loss of $246,699 relating to interest rate swap contracts and a gain of  $267,323 relating to warrants. The net loss recorded for the six months ended June 30, 2010 was comprised of a loss of $461,813 relating to interest rate swap contracts and a gain of $265,534 relating to warrants. The gain recorded for the three months ended June 30, 2009 was comprised of an unrealized gain relating to warrants. The loss recorded for the six months ended June 30, 2009 was comprised of an unrealized loss relating to warrants.

 
19

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(10)
Derivative Financial Instruments - continued
 
 Derivative Risks

The LLC manages exposure to possible defaults on derivative financial instruments by monitoring the concentration of risk that the LLC has with any individual bank and through the use of minimum credit quality standards for all counterparties. The LLC does not require collateral or other security in relation to derivative financial instruments. Since it is the LLC’s policy to enter into derivative contracts with banks of internationally acknowledged standing only, the LLC considers the counterparty risk to be remote.

As of June 30, 2010, the fair value of the derivatives in a liability position was $8,359,030. In the event that the LLC would be required to settle its obligations under the agreements as of June 30, 2010, the termination value was $8,713,235.

(11)
Accumulated Other Comprehensive Loss
 
AOCI includes accumulated unrealized losses on derivative financial instruments and accumulated unrealized losses on currency translation adjustments of $7,131,909 and $2,266,000, respectively, at June 30, 2010 and accumulated unrealized losses on derivative financial instruments and accumulated unrealized losses on currency translation adjustments of $4,250,529 and $773,580, respectively, at December 31, 2009.

 Total comprehensive income for the three and six months ended June 30, 2010 was $3,988,113 and $8,954,274, which included: (i) net income of $6,718,987 and $13,386,522, (ii) the net change in unrealized losses on derivative financial instruments of $1,860,035 and $2,939,828 and (iii) unrealized losses on currency translation adjustments of $870,839 and $1,492,420, respectively.  Total comprehensive income for the three and six months ended June 30, 2009 was $7,684,215 and $11,426,635, which included: (i) net income of $5,770,835 and $10,208,858, (ii) the net change in unrealized gain on derivative financial instruments of $1,326,356 and $1,240,049 and (iii) unrealized gain (loss) on currency translation adjustments of $587,024 and $(22,272), respectively.
 
(12)
Fair Value Measurements
 
The LLC accounts for the fair value of financial instruments in accordance with the accounting pronouncements, which require assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

·  
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
·  
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
·  
Level 3: Pricing inputs that are generally unobservable and cannot be corroborated by market data.
 
 
20

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(12)
Fair Value Measurements - continued
 
Financial Assets and Liabilities Measured on a Recurring Basis

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Manager’s assessment, on the LLC’s behalf, of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

The following table summarizes the valuation of the LLC’s material financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2010:
 
   
Level 1(1)
   
Level 2(2)
   
Level 3(3)
   
Total
 
Assets:
                       
                         
Warrants
  $ -     $ 344,905     $ -     $ 344,905  
                                 
Liabilities:
                               
                                 
Derivative instruments
  $ -     $ 8,359,030     $ -     $ 8,359,030  
                                 
(1) Quoted prices in active markets for identical assets or liabilities.
 
(2) Observable inputs other than quoted prices in active markets for identical assets and liabilities.
 
(3) No observable pricing inputs in the market.
 

The LLC’s derivative contracts, including interest rate swaps and warrants, are valued using models based on readily observable market parameters for all substantial terms of the LLC’s derivative contracts and are classified within Level 2. As permitted by the accounting pronouncements, the LLC uses market prices and pricing models for fair value measurements of its derivative instruments.  The fair value of the warrants was recorded in other non-current assets and the fair value of the derivative liabilities was recorded in derivative instruments within the consolidated balance sheets.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The LLC is required, on a nonrecurring basis, to adjust the carrying value or provide valuation allowances for certain assets and liabilities using fair value measurements.  The LLC’s non-financial assets, such as leased equipment at cost, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.  The following table summarizes the carrying value of the LLC’s material non-financial assets and liabilities after valuation allowance using fair value measurement on a nonrecurring basis as of June 30, 2010:

   
June 30, 2010(1)
   
Level 1(2)
   
Level 2(3)
   
Level 3(4)
   
Total Impairment Loss
 
                               
Assets held for sale, net
  $ 3,437,813     $ -     $ 3,437,813     $ -     $ 1,282,568  
                                         
(1) Represents the current value of the assets prior to measurement at fair value.
                 
(2) Quoted prices in active markets for identical assets or liabilities.
                         
(3) Observable inputs other than quoted prices in active markets for identical assets and liabilities.
                 
(4) No observable pricing inputs in the market.
                                 
 
 
 
21

ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2010
(unaudited)


(12)
Fair Value Measurements - continued
 
Fair value information with respect to the LLC’s leased assets and liabilities is not separately provided since (i) the current accounting pronouncements do not require fair value disclosures of lease arrangements and (ii) the carrying value of financial assets, other than lease-related investments, and the recorded value of recourse debt approximate fair value due to their short-term maturities and variable interest rates. The estimated fair value of the LLC’s other non-current liabilities and notes receivable was based on the discounted value of future cash flows related to the loans based on recent transactions of this type.

   
June 30, 2010
 
   
Carrying Amount
   
Fair Value
 
 Fixed rate notes receivable
  $ 64,764,053     $ 65,276,794  
                 
 Other non-current liabilities
  $ 53,190,101     $ 50,481,989  
 
(13)
Commitments and Contingencies
 
At the time the LLC acquires or divests of its interest in an equipment lease or other financing transaction, the LLC may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities.  The Manager believes that any liability that may arise as a result of any such indemnification obligations will not have a material adverse effect on the consolidated financial condition of the LLC taken as a whole.

The LLC, Fund Ten and Fund Eleven (collectively, the “Participating Funds”) have entered into a credit support agreement, pursuant to which losses incurred by a Participating Fund with respect to any financing provided to any MWU subsidiary are shared among the Participating Funds in proportion to their respective capital investments. The term of the credit support agreement matches the term of the schedules to the master lease agreement. At June 30, 2010, the LLC recorded receivables of approximately $807,000 and $1,356,000 in connection with the obligations of Fund Ten and Fund Eleven, respectively, under the credit support agreement as of such date.

The LLC has entered into certain residual sharing and remarketing agreements with various third parties.  In connection with these agreements, residual proceeds received in excess of specific amounts will be shared with these third parties based on specific formulas. The obligation related to these agreements is recorded at fair value.

In connection with the acquisitions of the Aframax product tankers, the M/V Eagle Auriga (the “Eagle Auriga”), the M/V Eagle Centaurus (the “Eagle Centaurus”), the M/V Eagle Carina (the “Eagle Carina”) and the M/V Eagle Corona (the “Eagle Corona”), the LLC, through ICON Eagle Holdings, ICON Carina Holdings and ICON Corona Holdings, maintains four restricted cash accounts with Fortis Bank NV/SA (“Fortis”). These restricted cash accounts consist of the free cash balances that result from the difference between the bareboat charter payments from AET, Inc. Limited (“AET”) and the repayments on the non-recourse long-term debt to Fortis and DVB. The account of ICON Eagle Holdings is cross-collateralized and the free cash remains in the restricted cash account until an aggregate amount of $500,000 is funded into the account. Thereafter, all cash in excess of $500,000 can be distributed. The free cash for ICON Carina Holdings and ICON Corona Holdings remain in their restricted cash accounts until $500,000 is funded into each account. Thereafter, all free cash in excess of $500,000 can be distributed from the respective accounts.
 
In connection with the acquisitions of the Leighton Mynx, the Leighton Stealth and the Leighton Eclipse, the LLC, through ICON Mynx, ICON Stealth and ICON Eclipse, is required to maintain a minimum aggregate cash balance of $450,000 among the respective bank accounts of ICON Mynx, ICON Stealth and ICON Eclipse.

In connection with the acquisition of the product tanker vessel, the Ocean Princess, the LLC, through ICON Ionian, is required to maintain a minimum cash balance of $300,000 with Nordea Bank Norge ASA (“Nordea”) at all times.

In connection with the acquisition of the Leighton Faulkner, the LLC, through ICON Faulkner, is required to maintain a minimum aggregate cash balance of $75,000 within ICON Faulkner’s bank account.

The aforementioned cash amounts are presented within other non-current assets in the LLC’s consolidated balance sheets as of June 30, 2010 and December 31, 2009.




The following is a discussion of our current financial position and results of operations. This discussion should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2009. This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements” and the “Risk Factors” set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.

As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include ICON Leasing Fund Twelve, LLC and its consolidated subsidiaries.

Forward-Looking Statements

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”).  These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements.  Forward-looking statements are those that do not relate solely to historical fact.  They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events.  You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning.  These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Overview

Our offering period ended on April 30, 2009 and our operating period commenced on May 1, 2009. We operate as an equipment leasing and finance program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. With the proceeds from the sale of our Shares, we invested and continue to invest in equipment subject to leases, other equipment financing, and residual ownership rights in items of leased equipment and establish a cash reserve.  After the net offering proceeds were invested, additional investments will be made with the cash generated from our initial investments to the extent that cash is not used for expenses, reserves and distributions to members. The investment in additional equipment in this manner is called “reinvestment.” We anticipate investing in equipment from time to time for five years. This time frame is called the “operating period” and may be extended, at the sole discretion of our Manager, for up to an additional three years.  After the operating period, we will then sell our assets in the ordinary course of business during a time frame called the “liquidation period.”
 
Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions, under the terms of our LLC Agreement. Our initial closing was on May 25, 2007, when the minimum offering of $1,200,000 was achieved (the “Commencement of Operations”). From the Commencement of Operations through April 30, 2009, the end of our offering period, we raised total equity of $347,686,947.

 
 

Recent Significant Transactions

We engaged in the following significant transactions since December 31, 2009:

Marine Vessels and Equipment

On December 18, 2009, we, through our wholly-owned subsidiary, ICON Faulkner, entered into the Faulkner MOA to purchase the Leighton Faulkner from Leighton Contractors for $20,000,000.  Simultaneously with the execution of the Faulkner MOA, ICON Faulkner entered into a bareboat charter with Leighton Contractors for a period of ninety-six months commencing on January 5, 2010.  The purchase price for the Leighton Faulkner consisted of $1,000,000 in cash and $19,000,000 in non-recourse indebtedness, which included $12,000,000 of senior debt pursuant to a senior facility agreement with SCB and a $7,000,000 subordinated seller’s credit.  The loan with SCB has a term of five years, with an option to extend for another three years. The interest rate has been fixed pursuant to a swap agreement.  All of Leighton Contractors’ obligations are guaranteed by its ultimate parent company, Leighton Holdings, a publicly traded company on the Australian Stock Exchange.  We paid an acquisition fee to our Manager of $600,000 relating to this transaction.

On March 31, 2010, we, through our wholly-owned subsidiary, ICON Mynx, entered into an agreement with Leighton Offshore to upgrade the Leighton Mynx by acquiring certain equipment and making certain upgrades to the Leighton Mynx in an amount equal to $20,000,000. The upgrades include the addition of a helicopter deck, as well as a new crane and accommodation unit. The cost of the upgrades will be financed with $2,000,000 in cash and $18,000,000 in non-recourse indebtedness, which includes $4,000,000 of subordinated contractor’s credit and $14,000,000 of senior debt pursuant to the Amended Facility Agreement. The Amended Facility Agreement will be repaid in quarterly installments beginning on March 31, 2011 and interest will be fixed pursuant to a swap agreement with SCB. In consideration for financing the upgrades, ICON Mynx and Leighton Offshore agreed to amend the bareboat charter for the Leighton Mynx to, among other things, increase the amount of monthly charter hire payable by Leighton Offshore and increase the value of the purchase option price at the expiry of the charter. All of Leighton Offshore’s obligations are guaranteed by Leighton Holdings. We paid an acquisition fee to our Manager of $600,000 relating to this transaction.

Manufacturing Equipment

Due to the global downturn in the automotive industry, Sealynx requested a restructuring of its lease payments during the third quarter of 2009 and we agreed to reduce Sealynx’s lease payments.  On January 4, 2010, we restructured Sealynx’s payment obligations under the lease to provide it with cash flow flexibility while at the same time attempting to preserve our projected economic return on this investment.  As additional security for restructuring the payment obligations, ICON French Equipment II received an additional mortgage on certain real property owned by Sealynx located in Charleval, France.  On July 5, 2010, Sealynx filed for a conciliation procedure with the Commercial Court of Nanterre requesting it to repay, over a two year period, approximately $1,900,000 in deferred rent that became due to us on July 1, 2010.  The Commercial Court of Nanterre has not yet ruled on Sealynx’s request.

On January 13, 2010, we further amended the lease with LC Manufacturing to reduce LC Manufacturing’s payment obligations under the lease and to provide us with an excess cash flow sweep in the event that excess cash flow is available in the future.  On May 31, 2010, MWU sold its equity interest in LC Manufacturing to an entity controlled by LC Manufacturing’s management and the personal guaranty of MWU’s principal was reduced to $6,500,000 with respect to LC Manufacturing.  On July 26, 2010, we, in consideration for all amounts due under the lease, sold the equipment we leased to the MWU affiliate, Metavation, and terminated the lease.



Gas Compressors

On April 1, 2010, we sold to Hardwood Partners a 5.460% nonvoting, noncontrolling interest in ICON Atlas for the purchase price of $550,000.  As a result, we recorded a gain on sale in the amount of approximately $1,000, which was included in members’ equity, and our economic interest in ICON Atlas was reduced to 49.540%, although our controlling interest remained at 55%.

Telecommunications Equipment

On June 29, 2010, we, through our wholly-owned subsidiary, ICON Broadview, entered into a master lease agreement for information technology equipment with Broadview. During the period beginning June 29, 2010 through December 31, 2010, ICON Broadview will acquire up to four schedules of information technology equipment, which will be leased to Broadview. The aggregate purchase price for the equipment will be equal to at least $5,000,000.  We paid an acquisition fee to our Manager of $150,000 relating to this transaction.

On July 15, 2010, ICON Broadview purchased information technology equipment from Juniper Networks (US), Inc. for the purchase price of approximately $602,000 and simultaneously leased the equipment to Broadview.  The base term of the schedule is for a period of thirty-six months, which commenced on August 1, 2010.

Note Receivable Secured by a Machine Paper Coating Manufacturing Line

On February 26, 2010, we, through our wholly-owned subsidiary, ICON Appleton, amended certain financial covenants in the loan agreement with Appleton.  In consideration for amending the loan agreement, we received an amendment fee from Appleton in the amount of approximately $117,000.

On April 1, 2010, we sold to Hardwood Partners a 5.1% noncontrolling interest in ICON Appleton for the purchase price of $1,000,000.  As a result, we recorded a gain on sale in the amount of approximately $6,000, which was included in members’ equity, and our controlling interest in ICON Appleton was reduced to 94.900%.

On July 20, 2010, we amended the loan agreement to release two borrowers that were being sold by Appleton to a third party, American Plastics Company, Inc. and New England Extrusion, Inc.  In consideration for amending the loan agreement, we received an amendment fee in the amount of $40,000 from Appleton.

Notes Receivable Secured by Analog Seismic System Equipment

On April 1, 2010, we sold to Hardwood Partners a 2.913% noncontrolling interest in ICON ION for the purchase price of $550,000.  As a result, we recorded a gain on sale in the amount of approximately $4,000, which was included in members’ equity, and our controlling interest in ICON ION was reduced to 52.087%.

Note Receivable Secured by Rail Support Construction Equipment

On April 1, 2010, we sold to Hardwood Partners a 5.873% nonvoing, noncontrolling interest in ICON Quattro for the purchase price of $550,000.  As a result, we recorded a loss on sale in the amount of approximately $37,000, which was included in members’ equity, and our economic interest in ICON Quattro was reduced to 49.127%, although our controlling interest remained at 55%..

 
 

Note Receivable Secured by Aframax Tankers

On June 30, 2010, we, through our wholly-owned subsidiary, ICON Palmali 12, and Fund Fourteen, through its wholly-owned subsidiary, ICON Palmali 14, participated in the Palmali Loan Agreement by making second priority secured term loans to Ocean Navigation.  The proceeds of the loans will be used by Ocean Navigation to purchase two Vessels.

The aggregate principal amounts of ICON Palmali 12’s and ICON Palmali 14’s secured term loans are $9,600,000 and $14,400,000, respectively, half of which will be made available to Ocean Navigation for the purchase of each Vessel.  Interest on the secured term loans accrues at a rate of 15.25% per year and is payable quarterly in arrears for a period of six years from the delivery date of each Vessel.  The entire principal amounts will be due at the maturity of the loans.  Ocean Navigation has the option to prepay the loans in whole or in part following the third anniversary of the date of the first advance for each Vessel.

On July 28, 2010, ICON Palmali 12 and ICON Palmali 14 made loans in the amounts of $4,800,000 and $7,200,000, respectively, to Ocean Navigation for the purchase of the Shah Deniz.  In connection with the loans, ICON Palmali 12 and ICON Palmali 14 collected (i) arrangement fees in the amounts of $240,000 and $360,000, respectively, and (ii) unused commitment fees of 2% per year on the undrawn loan amounts.  In addition, Ocean Navigation is required to pay an additional unused commitment fee of 2% per year of the undrawn loan amounts from July 29, 2010 through September 30, 2010, 4% per year from October 1, 2010 through December 31, 2010 and 6% per year from January 1, 2011 through March 31, 2011.

The loans are secured by, among other things, second priority security interests in (i) the Vessels, (ii) the earnings from the Vessels and (iii) the equity interests of Ocean Navigation. In addition, Ocean Navigation or the Palmali Guarantors must provide ICON Palmali 12 and ICON Palmali 14 additional security for the loans with a fair market value of not less than $10,000,000 within twelve months of the date of the Palmali Loan Agreement.  All of Ocean Navigation’s obligations under the Palmali Loan Agreement are guaranteed by the Palmali Guarantors. 

Simultaneously with ICON Palmali 12’s and ICON Palmali 14’s loans, DVB will, pursuant to the Palmali Loan Agreement, lend $72,000,000 to Ocean Navigation for the purchase of the Vessels.  The DVB Loan is secured by, among other things, a first priority security interest in (x) the Vessels, (y) the earnings from the Vessels and (z) the equity interests of Ocean Navigation. The proceeds from the enforcement of any security will be applied (i) first, to pay all costs and expenses incurred by DVB, ICON Palmali 12 and ICON Palmali 14, (ii) second, to DVB for accrued and unpaid interest, (iii) third, to DVB for unpaid principal, (iv) fourth, pro rata to ICON Palmali 12 and ICON Palmali 14 for accrued and unpaid interest, and (v) fifth, pro rata to ICON Palmali 12 and ICON Palmali 14 for unpaid principal.  We paid an acquisition fee to our Manager of approximately $1,388,000 relating to ICON Palmali 12’s investment in this transaction.

ICON Global Crossing IV, LLC

On June 25, 2010, we, through our wholly-owned subsidiary, ICON Global Crossing IV, borrowed approximately $12,449,000 from CapitalSource.  In consideration for making the loan, CapitalSource received a first priority security interest in ICON Global Crossing IV's interest in Schedules 1, 2, 3, 5, 12 and 13 to ICON Global Crossing IV’s master lease agreement with Global Crossing.  The loan is payable monthly in arrears beginning on July 1, 2010 through March 1, 2012.  Interest is payable at a rate of 9% per year throughout the term of the loan.
 

 

Assets Held for Sale

On June 2, 2010, ICON EAR, a joint venture owned 55% by us and 45% by Fund Eleven, in conjunction with ICON EAR II, a wholly-owned subsidiary of Fund Eleven, sold a parcel of real property in Jackson Hole, Wyoming that was received as additional security under their respective leases with EAR.  The real property was sold for the aggregate net purchase price of approximately $757,000.  As a result, we recognized a loss on such assets held for sale of approximately $298,000.  This amount was recorded to loss on assets held for sale on the consolidated statements of operations. In addition, on June 7, 2010, ICON EAR and ICON EAR II received judgments in New York State Supreme Court against two principals of EAR who had guaranteed EAR’s lease obligations.  ICON EAR and ICON EAR II are in the process of having the judgments recognized in Illinois, where the principals live.  At this time, it is not possible to determine the abilities of ICON EAR and ICON EAR II to collect the amounts due under their respective leases from EAR’s principals.

Our Manager periodically reviews the significant assets in our portfolio to determine whether events or changes in circumstances indicate that the net book value of an asset may not be recoverable. In light of recent developments in the real estate market and the sale of a parcel of real property located in Jackson Hole, Wyoming on June 2, 2010, our Manager reviewed our investment in ICON EAR.

Based on our Manager’s review, the net book value of the remaining parcels of real property located in Jackson Hole, Wyoming exceeded their fair market value.  As a result, ICON EAR recognized a non-cash impairment charge of approximately $1,283,000.

Recently Adopted Accounting Pronouncements

There are no recent accounting pronouncements that are expected to have a significant impact on our consolidated financial statements as of June 30, 2010.  See Note 2 to our consolidated financial statements for a discussion of accounting pronouncements that we have recently adopted.

Other Recent Events

Since the onset of the recession in December 2007, the rate of payment defaults by lessees, borrowers and other financial counterparties has generally risen significantly. Our Manager continuously reviews and evaluates our transactions to take such action as it deems necessary to mitigate any adverse developments on our liquidity, cash flows or profitability, which may include agreeing to restructure a transaction with one or more of our lessees, borrowers or other financial counterparties.  In the event of a restructuring of a transaction, our Manager generally expects that the lessee, borrower and/or other financial counterparty will ultimately be able to satisfy its obligations to us.  As a result thereof, our Manager has discussed and continues to discuss restructuring options with some of our lessees, borrowers and other financial counterparties.  In many instances, the transaction is not restructured and continues as initially structured.  Nevertheless, there can be no assurance that any future restructurings will not have an adverse effect on our financial position, results of operations or cash flows. Except as otherwise disclosed in this Quarterly Report on Form 10-Q, our Manager has not agreed to restructure any of our transactions and we have not taken any impairment charges during the six months ended June 30, 2010, and there is no information that would cause our Manager to take an impairment charge on any of our transactions at this time.
 
 
 

Results of Operations for the Three Months Ended June 30, 2010 (the “2010 Quarter”) and 2009 (the “2009 Quarter”)
 
Our offering period ended on April 30, 2009 and our operating period commenced on May 1, 2009. We invested most of the net proceeds from our offering in equipment leases and other financing transactions. During our operating period, we have made and will continue to make investments with the cash generated from our initial investments and our additional investments to the extent that the cash is not used for expenses, reserves and distributions to members. As our investments mature, we may reinvest the proceeds in additional investments in equipment or other financing transactions. We anticipate incurring gains or losses on our investments during our operating period. Additionally, we expect to see our rental income and finance income increase, as well as related expenses such as depreciation and amortization expense and interest expense. We anticipate that the fees we pay to our Manager to manage our investment portfolio will increase during this period as the size and volume of activity in our investment portfolio will increase.

Revenue for the 2010 Quarter and the 2009 Quarter is summarized as follows:

   
Three Months Ended June 30,
       
   
2010
   
2009
   
Change
 
                   
 Rental income
  $ 15,279,370     $ 13,213,846     $ 2,065,524  
 Finance income
    3,719,557       2,567,011       1,152,546  
 Income from investment in joint venture
    148,245       130,962       17,283  
 Interest and other income
    3,050,974       2,583,355       467,619  
 Gain on guaranty
    2,162,795       -       2,162,795  
 Loss on assets held for sale
    (297,864 )     -       (297,864 )
                         
 Total revenue
  $ 24,063,077     $ 18,495,174     $ 5,567,903  
 
Total revenue for the 2010 Quarter increased $5,567,903, or 30.1%, as compared to the 2009 Quarter.  The gain on guaranty recorded during the 2010 Quarter was in connection with the credit support agreement related to financing provided to the MWU subsidiaries, which resulted in accrued obligations from both Fund Ten and Fund Eleven.  The increase in rental income was due to the acquisitions of (i) the gas compressors by ICON Atlas in June 2009 and August 2009, (ii) the diving equipment by ICON Diving Marshall Islands, LLC (“ICON DMI”) in June 2009 and (iii) the mining equipment by ICON Murray II, LLC (“ICON Murray II”) in May 2009. The increase in finance income was primarily due to the acquisitions of (i) the vessel by ICON Faulkner in January 2010, (ii) the vessels by ICON Ionian and by ICON Eclipse in October 2009 and (iii) the vessel by ICON Stealth in June 2009.

Expenses for the 2010 Quarter and the 2009 Quarter are summarized as follows:

   
Three Months Ended June 30,
       
   
2010
   
2009
   
Change
 
               
 
 
 Management fees - Manager
  $ 1,092,234     $ 766,823     $ 325,411  
 Administrative expense reimbursements - Manager
    1,229,491       1,109,954       119,537  
 General and administrative
    763,825       576,073       187,752  
 Interest
    4,005,795       2,265,842       1,739,953  
 Depreciation and amortization
    8,977,551       7,999,787       977,764  
 Impairment loss
    1,282,568       -       1,282,568  
 (Gain) loss on financial instruments
    (7,374 )     5,860       (13,234 )
                         
 Total expenses
  $ 17,344,090     $ 12,724,339     $ 4,619,751  
 
 

Total expenses for the 2010 Quarter increased $4,619,751, or 36.3%, as compared to the 2009 Quarter. The increase in interest expense was due to the interest incurred on the debt obligations owed by ICON Faulkner, ICON Coach, LLC (“ICON Coach”), ICON Ionian, ICON Eclipse and ICON Stealth during the 2010 Quarter.  The impairment loss was due to the recognition of a non-cash impairment charge by ICON EAR during the 2010 Quarter.  The increase depreciation and amortization expense due to the acquisitions of (i) the gas compressors by ICON Atlas in June 2009 and August 2009, (ii) the diving equipment by ICON DMI in June 2009 and (iii) the mining equipment by ICON Murray II in May 2009.  Furthermore, the increase in depreciation and amortization expense was also due to the amortization expense for capitalized fees on direct finance leases for the acquisitions of (i) the vessel by ICON Faulkner in January 2010, (ii) the vessels by ICON Ionian and ICON Eclipse in October 2009 and (iii) the vessels by ICON Mynx and ICON Stealth in June 2009, as well as the amortization expense for capitalized fees on the notes receivable invested in by ICON Quattro in December 2009 and ICON ION in June 2009 and July 2009.

Noncontrolling Interests

Net income attributable to noncontrolling interests for the 2010 Quarter decreased $503,023, or 24.4%, as compared to the 2009 Quarter. The decrease in net income attributable to noncontrolling interests was primarily due to the recognition of a non-cash impairment charge by ICON EAR during the 2010 Quarter.  Additionally, on October 23, 2009, EAR filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code, and as a result, ICON EAR did not generate the revenue stream that was present in the 2009 Quarter. Offsetting the decrease was our investments in controlling interests in ICON Quattro, ICON Atlas and ICON ION during 2009, in each of which Fund Fourteen has a noncontrolling interest.  Also offsetting the decrease was Hardwood Partners’ investment in a noncontrolling interest in each of ICON Quattro, ICON Atlas, ICON ION and ICON Appleton during the 2010 Quarter.

Net Income Attributable to Fund Twelve

As a result of the foregoing factors, net income attributable to us for the 2010 Quarter and the 2009 Quarter was $5,164,070 and $3,712,895, respectively. Net income attributable to us per weighted average additional Share outstanding for the 2010 Quarter and the 2009 Quarter was $14.66 and $10.74, respectively.
 

Results of Operations for the Six Months Ended June 30, 2010 (the “2010 Period”) and 2009 (the “2009 Period”)

Revenue for the 2010 Period and the 2009 Period is summarized as follows:
 
   
Six Months Ended June 30,
       
   
2010
   
2009
   
Change
 
                   
 Rental income
  $ 30,936,632     $ 26,044,236     $ 4,892,396  
 Finance income
    7,685,324       3,447,921       4,237,403  
 Income from investment in joint venture
    297,203       292,866       4,337  
 Interest and other income
    6,274,726       4,999,171       1,275,555  
 Gain on guaranty
    2,162,795       -       2,162,795  
 Loss on assets held for sale
    (297,864 )     -       (297,864 )
                         
 Total revenue
  $ 47,058,816     $ 34,784,194     $ 12,274,622  

Total revenue for the 2010 Period increased $12,274,622, or 35.3%, as compared to the 2009 Period.  The increase in rental income was due to the acquisitions of (i) the gas compressors by ICON Atlas in June 2009 and August 2009, (ii) the diving equipment by ICON DMI in June 2009, (iii) the mining equipment by ICON Murray, LLC (“ICON Murray”) and ICON Murray II in February 2009 and May 2009, respectively, (iv) the motor coaches by ICON Coach in April 2009 and (v) the vessel by Victorious, LLC (“Victorious”) in March 2009. The increase in finance income was primarily due to the acquisitions of (i) the vessel by ICON Faulkner in January 2010, (ii) the vessels by ICON Ionian and by ICON Eclipse in October 2009, (iii) the vessels by ICON Mynx and ICON Stealth in June 2009 and (iv) the additional telecommunications equipment by ICON Global Crossing IV in March 2009. The gain on guaranty recorded during the 2010 Period was in connection with the credit support agreement related to financing provided to the MWU subsidiaries, which resulted in accrued obligations from both Fund Ten and Fund Eleven.  The increase in interest and other income was primarily due to the interest earned from the investments in notes receivable by ICON Quattro in December 2009, ICON ION in June 2009 and July 2009 and ICON Northern Leasing II, LLC (“ICON Northern Leasing II”) in March 2009.

Expenses for the 2010 Period and the 2009 Period are summarized as follows:

   
Six Months Ended June 30,
       
   
2010
   
2009
   
Change
 
               
 
 
 Management fees - Manager
  $ 2,165,116     $ 1,466,852     $ 698,264  
 Administrative expense reimbursements - Manager
    1,914,934       1,960,023       (45,089 )
 General and administrative
    1,397,312       1,022,570       374,742  
 Interest
    8,538,994       4,507,220       4,031,774  
 Depreciation and amortization
    18,150,293       15,599,376       2,550,917  
 Impairment loss
    1,282,568       -       1,282,568  
 Loss on financial instruments
    223,077       19,295       203,782  
                         
 Total expenses
  $ 33,672,294     $ 24,575,336     $ 9,096,958  

Total expenses for the 2010 Period increased $9,096,958, or 37.0%, as compared to the 2009 Period. The increase in total expenses was primarily due to increases in interest expense due to the interest incurred on the debt obligations owed by ICON Faulkner, ICON Coach, ICON Ionian, ICON Eclipse, ICON Mynx and ICON Stealth during the 2010 Period.  The increase in depreciation and amortization expense is due to the acquisitions of (i) the gas compressors by ICON Atlas in June 2009 and August 2009, (ii) the diving equipment by ICON DMI in June 2009, (iii) the mining equipment by ICON Murray and ICON Murray II in February 2009 and May 2009, respectively, (iv) the motor coaches by ICON Coach in April 2009 and (v) the vessel by Victorious in March 2009. Furthermore, the increase in depreciation and amortization expense was also due to the amortization expense for capitalized fees on direct finance leases for the acquisitions of (i) the vessel by ICON Faulkner in January 2010, (ii) the vessels by ICON Ionian and ICON Eclipse in October 2009, (iii) the vessels by ICON Mynx and ICON Stealth in June 2009 and (iv) the telecommunications equipment by ICON Global Crossing IV in March 2009, as well as the amortization expense for capitalized fees on the notes receivable invested in by ICON Quattro in December 2009, ICON ION in June 2009 and July 2009 and ICON Northern Leasing II in March 2009. The impairment loss was due to the recognition of a non-cash impairment charge by ICON EAR during the 2010 Period.
 
 

 
Noncontrolling Interests

Net income attributable to noncontrolling interests for the 2010 Period increased $244,501, or 7.1%, as compared to the 2009 Period. The increase in net income attributable to noncontrolling interests was primarily due to our investments in controlling interests in ICON Quattro, ICON Atlas and ICON ION during 2009, in each of which Fund Fourteen has a noncontrolling interest.  The increase was also due to Hardwood Partners’ investment in a noncontrolling interest in each of ICON Quattro, ICON Atlas, ICON ION and ICON Appleton during the 2010 Period.

Net Income Attributable to Fund Twelve

As a result of the foregoing factors, net income attributable to us for the 2010 Period and the 2009 Period was $9,717,736 and $6,784,573, respectively. Net income attributable to us per weighted average additional Share outstanding for the 2010 Period and the 2009 Period was $27.59 and $21.07, respectively.

Financial Condition

This section discusses the major balance sheet variances at June 30, 2010 compared to December 31, 2009.

Total Assets

Total assets increased $15,782,707, from $620,978,386 at December 31, 2009 to $636,761,093 at June 30, 2010.  The increase was primarily due to the cash received from the debt borrowed by ICON Global Crossing IV in June 2010.  The increase was also due to the acquisition of a vessel by ICON Faulkner and the Mynx upgrade during the 2010 Period.  This increase was partially offset by depreciation of leased equipment at cost, scheduled repayments of our notes receivable, and cash distributions to our members and noncontrolling interests.

Current Assets

Current assets increased $12,128,714, from $78,149,655 at December 31, 2009 to $90,278,369 at June 30, 2010.  The increase was primarily due to the cash received from the debt borrowed by ICON Global Crossing IV in June 2010.  The increase was also due to the acquisition of a vessel by ICON Faulkner during the 2010 Period.  This increase was partially offset by cash distributions to our members and noncontrolling interests.
 
Total Liabilities

Total liabilities increased $28,317,842, from $279,343,161 at December 31, 2009 to $307,661,003 at June 30, 2010. The increase was primarily due to an increase in derivative instrument obligations as well as debt obligations incurred by ICON Global Crossing IV, ICON Mynx and ICON Faulkner during the 2010 Period. The increase was partially offset by scheduled repayments of our non-recourse long-term debt.
 
 
 

Current Liabilities

Current liabilities increased $4,505,395, from $58,299,215 at December 31, 2009 to $62,804,610 at June 30, 2010.  The increase was primarily due to the non-recourse debt obligations incurred by ICON Global Crossing IV, ICON Mynx and ICON Faulkner during the 2010 Period, and the increase in our derivative instrument obligations during the 2010 Period.

Equity

Equity decreased $12,535,135, from $341,635,225 at December 31, 2009 to $329,100,090 at June 30, 2010. The decrease was primarily due to the distributions paid to our members and noncontrolling interests and the change in fair value of derivative instruments and currency translation adjustments during the 2010 Period. The decrease was partially offset by net income and the investment in joint ventures by noncontrolling interests during the 2010 Period.
 
Liquidity and Capital Resources

Summary

At June 30, 2010 and December 31, 2009, we had cash and cash equivalents of $39,784,068 and $27,075,059, respectively. During our offering period, our main source of cash was from financing activities and our main use of cash was in investing activities. During our operating period, our main source of cash is from operating activities and our main use of cash is in investing and financing activities. Our liquidity will vary in the future, increasing to the extent cash flows from investments and proceeds from the sale of our investments exceed expenses and decreasing as we enter into new investments, pay distributions to our members and to the extent that expenses exceed cash flows from operations and the proceeds from the sale of our investments.

We currently have adequate cash balances and generate a sufficient amount of cash flow from operations to meet our short-term working capital requirements.  We expect to generate sufficient cash flows from operations to sustain our working capital requirements in the foreseeable future. In the event that our working capital is not adequate to fund our short-term liquidity needs, we could borrow against our revolving line of credit, with $28,650,000 available at June 30, 2010, to meet such requirements.  For additional information, see Note 8 to our consolidated financial statements.

We anticipate that our liquidity requirements for the remaining life of the fund will be financed by the expected results of our operations, as well as cash received from our investments at maturity.

We anticipate being able to meet our liquidity requirements into the foreseeable future. However, our ability to generate cash in the future is subject to general economic, financial, competitive, regulatory and other factors that affect us and our lessees’ and borrowers’ businesses that are beyond our control.

Pursuant to the terms of our offering, we established a cash reserve in the amount of 0.5% of the gross offering proceeds.  As of June 30, 2010, the cash reserve was $1,738,435.
 
 
 
 
      Cash Flows

The following table sets forth summary cash flow data:
 
   
Six Months Ended June 30,
 
   
2010
   
2009
 
   
Net cash provided by (used in):
           
   
 Operating activities
  $ 22,199,416     $ 9,138,183  
 Investing activities
    6,116,983       (66,639,036 )
 Financing activities
    (15,593,878 )     46,133,760  
 Effects of exchange rates on cash and cash equivalents
    (13,512 )     28,419  
   
Net increase (decrease) in cash and cash equivalents
  $ 12,709,009     $ (11,338,674 )

Note: See the Consolidated Statements of Cash Flows included in “Item 1. Consolidated Financial Statements” of this Quarterly Report on Form 10-Q for additional information.
 
Operating Activities

Cash provided by operating activities increased $13,061,233, from $9,138,183 in the 2009 Period to $22,199,416 in the 2010 Period.  The increase was primarily due to increases in the collection of finance leases, depreciation and amortization expense and net income during the 2010 Period.  Such amounts were partially offset by increases in finance income and other assets during the 2010 Period.

Investing Activities

Cash provided by investing activities increased $72,756,019, from a use of cash of $66,639,036 in the 2009 Period, to a source of cash of $6,116,983 in the 2010 Period. We invested in one equipment lease during the 2010 Period as compared to nine equipment leases and two other financing transactions during the 2009 Period. Such amounts were partially offset by repayments of a portion of our notes receivable during the 2010 Period.

Financing Activities

Cash used in financing activities increased $61,727,638, from a source of cash of $46,133,760 in the 2009 Period, to a use of cash of $15,593,878 in the 2010 Period.  The net use of cash was primarily due to a decrease in the proceeds we received from the issuance of additional Shares as compared to the 2009 Period, as our offering period ended on April 30, 2009.  The net use of cash in financing activities was also due to the increase in distributions paid to our members and noncontrolling interests.  The increase in cash used in financing activities was offset by the increase in the investment in joint ventures by noncontrolling interests and the net proceeds received from our non-recourse long-term debt.
 
Non-Recourse Long-Term Debt

We had non-recourse long-term debt obligations at June 30, 2010 of $236,205,687. Most of our non-recourse long-term debt obligations consist of notes payable in which the lender has a security interest in the equipment and an assignment of the rental payments under the lease, in which case the lender is being paid directly by the lessee. In other cases, we receive the rental payments and pay the lender.  If the lessee were to default on the non-recourse long-term debt, the equipment would be returned to the lender in extinguishment of the non-recourse long-term debt.
 
 

 
Distributions

We, at our Manager’s discretion, pay monthly distributions to each of our additional members and noncontrolling interests starting with the first month after each such member’s admission and the commencement of our joint venture operations, respectively, and we expect to continue to pay such distributions until the end of our operating period. We paid distributions to our Manager, additional members and noncontrolling interests of $169,952, $16,825,229 and $7,249,035, respectively, during the 2010 Period.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At June 30, 2010, we had non-recourse debt obligations. The lender has a security interest in the majority of the equipment collateralizing each non-recourse long-term debt instrument and an assignment of the rental payments under the lease associated with the equipment. In such cases, the lender is being paid directly by the lessee.  In other cases, we receive the rental payments and pay the lender. If the lessee defaults on the lease, the equipment would be returned to the lender in extinguishment of the non-recourse debt. At June 30, 2010, our outstanding non-recourse long-term indebtedness was $236,205,687.  We are a party to the Facility and had no borrowings under the Facility at June 30, 2010.
 
The Participating Funds have entered into a credit support agreement, pursuant to which losses incurred by a Participating Fund with respect to any financing provided to any MWU subsidiary are shared among the Participating Funds in proportion to their respective capital investments. The term of the credit support agreement matches the term of the schedules to the master lease agreement. At June 30, 2010, we recorded receivables of approximately $807,000 and $1,356,000 in connection with the accrued obligations of Fund Ten and Fund Eleven, respectively, under the credit support agreement as of such date.

We have entered into certain residual sharing and remarketing agreements with various third parties.  In connection with these agreements, residual proceeds received in excess of specific amounts will be shared with these third parties based on specific formulas. The obligation related to these agreements is recorded at fair value.

In connection with the acquisitions of the Eagle Auriga, the Eagle Centaurus, the Eagle Carina and the Eagle Corona, we, through ICON Eagle Holdings, ICON Carina Holdings and ICON Corona Holdings, maintain four restricted cash accounts with Fortis. These restricted cash accounts consist of the free cash balances that result from the difference between the bareboat charter payments from AET and the repayments on the non-recourse long-term debt to Fortis and DVB. The account of ICON Eagle Holdings is cross-collateralized and the free cash remains in the restricted cash account until an aggregate amount of $500,000 is funded into the account. Thereafter, all cash in excess of $500,000 can be distributed. The free cash for ICON Carina Holdings and ICON Corona Holdings remain in their restricted cash accounts until $500,000 is funded into each account. Thereafter, all free cash in excess of $500,000 can be distributed from the respective accounts.

In connection with the acquisitions of the Leighton Mynx, the Leighton Stealth and the Leighton Eclipse, we, through ICON Mynx, ICON Stealth and ICON Eclipse, are required to maintain a minimum aggregate cash balance of $450,000 among the respective bank accounts of ICON Mynx, ICON Stealth and ICON Eclipse.

In connection with the acquisition of the Ocean Princess, we, through ICON Ionian, are required to maintain a minimum cash balance of $300,000 with Nordea at all times.

In connection with the acquisition of the Leighton Faulkner, we, through ICON Faulkner, are required to maintain a minimum aggregate cash balance of $75,000 within ICON Faulkner’s bank account.

The aforementioned cash amounts are presented within other non-current assets in our consolidated balance sheets as of June 30, 2010 and December 31, 2009.

Off-Balance Sheet Transactions

None.
 
 

 

There are no material changes to the disclosures related to this item since the filing of our Annual Report on Form 10-K for the year ended December 31, 2009.
 

Evaluation of disclosure controls and procedures

In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended June 30, 2010, as well as the financial statements for our Manager, our Manager carried out an evaluation, under the supervision and with the participation of the management of our Manager, including its Co-Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the design and operation of our Manager’s disclosure controls and procedures as of the end of the period covered by this report pursuant to the Securities Exchange Act of 1934, as amended. Based on the foregoing evaluation, the Co-Chief Executive Officers and the Chief Financial Officer concluded that our Manager’s disclosure controls and procedures were effective.

In designing and evaluating our Manager’s disclosure controls and procedures, our Manager recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.  Our Manager’s disclosure controls and procedures have been designed to meet reasonable assurance standards. Disclosure controls and procedures cannot detect or prevent all error and fraud. Some inherent limitations in disclosure controls and procedures include costs of implementation, faulty decision-making, simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all anticipated and unanticipated future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with established policies or procedures.  

Evaluation of internal control over financial reporting

There have been no changes in our internal control over financial reporting during the three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 

 


In the ordinary course of conducting our business, we may be subject to certain claims, suits and complaints filed against us.  In our Manager’s opinion, the outcome of such matters, if any, will not have a material impact on our consolidated financial position, cash flows or results of operations.  We are not aware of any material legal proceedings that are currently pending against us or against any of our assets.


There have been no material changes from the risk factors disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2009.


Our Manager consented to our repurchase of 59 Shares during the 2010 Quarter. The repurchase amounts are calculated according to a specified repurchase formula pursuant to our LLC Agreement.  Repurchased Shares have no voting rights and do not share in distributions with other members. Our LLC Agreement limits the number of Shares that can be repurchased in any one year and repurchased Shares may not be reissued. The following table details our Share repurchases for the three months ended June 30, 2010:

   
Total Number of
   
Average Price Paid
 
 Period
 
Shares Repurchased
   
Per Share
 
 April 1, 2010 through April 30, 2010
    -     $ -  
 May 1, 2010 through May 31, 2010
    -     $ -  
 June 1, 2010 through June 30, 2010
    59     $ 798.80  
 Total
    59          
 

Not applicable.



Not applicable.

 
 
 
 
3.1
Certificate of Formation of Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on November 13, 2006 (File No. 333-138661)).
   
4.1
Limited Liability Company Agreement of Registrant (Incorporated by reference to Exhibit A to Registrant’s Prospectus filed with the SEC on May 8, 2007 (File No. 333-138661)).
   
10.1
Commercial Loan Agreement, dated as of August 31, 2005, by and among California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 20, 2007).
   
10.2
Loan Modification Agreement, dated as of December 26, 2006, between California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC (Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated June 20, 2007).
   
10.3 
Loan Modification Agreement, dated as of June 20, 2007, between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC (Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated June 20, 2007).
   
10.4
Third Loan Modification Agreement, dated as of May 1, 2008, between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC (Incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008, filed May 15, 2008).
   
10.5
Fourth Loan Modification Agreement, dated as of August 12, 2009, between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC, ICON Leasing Fund Twelve, LLC and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (Incorporated by reference to Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 14, 2009).
   
31.1
Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
   
31.2
Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
   
31.3
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
   
32.1
Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2
Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.3
Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
 


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ICON Leasing Fund Twelve, LLC
(Registrant)

By: ICON Capital Corp.
       (Manager of the Registrant)

August 13, 2010

By: /s/ Michael A. Reisner
       Michael A. Reisner
       Co-Chief Executive Officer and Co-President
       (Co-Principal Executive Officer)

August 13, 2010

By: /s/ Mark Gatto
      Mark Gatto
      Co-Chief Executive Officer and Co-President
      (Co-Principal Executive Officer)
 
August 13, 2010

By: /s/ Anthony J. Branca
       Anthony J. Branca
       Chief Financial Officer
       (Principal Accounting and Financial Officer)
 
 
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